Dozens of young professionals say they face financial ruin because one of Britain's biggest housebuilders, Berkeley Homes, is threatening to sue them for tens of thousands of pounds after they signed up to buy new flats before being left high and dry when the property market collapsed.

Some claim they face losing their life savings, being made bankrupt and even being made homeless because a lack of mortgages means they are no longer able to complete the purchase of apartments they agreed to buy at the height of the boom.

In some cases the flats are valued at 40% less than the original price and mortgage offers have been withdrawn, leaving buyers in the near-impossible position of having to find perhaps £100,000 or £150,000 to plug the gap.

After issuing warnings about possible legal action, lawyers for Berkeley have started sending letters to buyers, stating the developer will sue them for damages for breach of contract and will seek interest on its losses, plus costs.

But the homebuyers say they will not be "bullied". They have set up a support group with its own website, started a legal fund, and appointed a City law firm and a barrister to advise them. "We're up for the fight. We've nothing to lose," says Steven Dowd, one of the group's founder members.

Most of those affected signed up to a property at one of three Berkeley developments in London: Caspian Wharf in Bow, Royal Arsenal Riverside in Woolwich, or Chelsea Bridge Wharf in Battersea. They typically bought "off-plan" in 2007 or early 2008, putting down a deposit of 10% with the balance due on completion.

Some will have little sympathy for these people, taking the view they signed a contract and that it is their responsibility to get finances in place. But, short of winning the lottery, it is hard to see how some of them can find the extra sums necessary to complete.

There is, of course, the little matter of getting a mortgage. The buyers argue that when they decided to buy, banks and building societies were prepared to lend 90% of a property's value. Now, the most many lenders will offer on new flats is 75%. There would appear to be little they could have done to avoid this mortgage trap. Home loan offers are typically valid for six months, so the buyers reserved properties and expected to sort out a mortgage nearer the completion date. Two years on, says Dowd, suitable mortgages are "impossible to find".

Euan Robertson is one of those caught up in this mess.

A 30-year-old IT consultant, he was married last September. In the run-up to the wedding, he and his soon-to-be-wife were looking to trade up from his one-bedroom flat, and in February 2008 they signed up for a £450,000 three-bedroom flat at Caspian Wharf.

They put down a £45,000 deposit – "my life savings", he says – and before signing up, he was prudent enough to make sure he had a mortgage for the remaining 90%, which was valid until March this year. But things started to unravel when, in December, he obtained a valuation that indicated the flat had plunged in value to £340,000.

Robertson says he was so worried that, "I couldn't sleep and couldn't eat". Then he met Dowd, who was standing in the rain outside Caspian Wharf on the hunt for others in the same position as himself. "I've had so many meetings with Berkeley, and I've been trying to meet them halfway," says Robertson, who lives in Greenwich, south-east London.

But, he adds, the company would not budge, even though he has access to a mortgage for £270,000 and could probably scrape together a further £20,000, in addition to the £45,000 he has handed over – a total of £335,000. But a few days ago he was notified Berkeley had terminated his contract and would be assessing its losses with a view to court action.

One woman, an accountant in her 20s, says she and her sister are trapped in a "living hell". They put down a £30,000 deposit on an off-plan flat at the Royal Arsenal development in December 2007, and were due to complete in March this year.

However, they have been hit by the double whammy of a lack of mortgages for people in their position and valuations coming in at 40% less than the £300,000 they are contracted to pay. As a result, the financial "gap" they have to fill is around £100,000.

"We are only 26 and 27 years of age; we borrowed the deposit for this flat against our own flat which now, given the fall in property prices, is in negative equity. All we ever wanted was to each own a flat of our own, and now we are facing financial ruin," says the woman.

She adds that she has been forced to give up work because of the stress of the situation, and fears being made bankrupt, which would spell the end of her career.

"The completion period has since passed. We are therefore in breach of the contract and are awaiting Berkeley's next move, which, from all communications with them so far, appears to be the court route, even though we have shown them we have no money – we do not have £100,000 sitting in the bank somewhere."

Letter of action

She is right about the court route; Guardian Money has seen a copy of a letter from law firm Davenport Lyons sent to the solicitor of another Caspian Wharf buyer, a woman who signed up to a £290,000 one-bedroom flat in July 2007, which has plummeted in value by around 30%.

The "letter before action" states: "Our client's claim against you is for damages for breach of the contract ... Our client anticipates that once it has been able to resell this property, it will have sustained significant losses … " It warns that Berkeley will keep her deposit, sell the flat and pursue her for things such as "wasted legal fees" and "marketing expenses".

Dowd says that, even assuming that Berkeley gets more than the typical fire sale auction value for the properties, the losses people will be hit with could run into five or even six figures, "resulting in bankruptcy for most".

The collective now has more than 60 members, who are "ordinary people buying homes for living in" rather than professional investors, while new people are getting in touch all the time, Dowd adds.

It is understood that customers of other homebuilders find themselves in a similar position.

Another buyer, Christian (he did not want to give his surname), describes how, in 2007, he put down his life savings on a Berkeley flat in the Royal Arsenal development. Now he is in the same boat as the others.

"I am a willing purchaser. I want to buy my first property, but the economic reality is that I cannot afford to do so at the contract price. I feel distraught, faced with the prospect of losing my life savings, being threatened with bankruptcy – which would immediately end my career – and being made homeless."

We put a number of questions to Berkeley. It said: "Like many developers, Berkeley Homes has a limited number of off-plan customers who are finding it difficult to complete their purchases. This is often due to lenders changing their approach to loan-to-value ratios and values being lower than at the time of exchange.

"Berkeley Homes has asked its purchasers to appreciate they cannot be released from contracts or offered price reductions. Manifestly, this would be unfair to those buyers who have been able to complete and who were faced with the same issues. We have sought to help the customers involved and continue to maintain an open dialogue to try to find ways of enabling them to honour their contract with us."